Swap Deal, New IMF Program to Boost Liquidity

The U.S. Federal Reserve Board announced yesterday a currency swap arrangement of up to 30 billion dollars with the central banks of Korea, Brazil, Mexico, and Singapore.

The International Monetary Fund also announced the establishment of a short-term liquidity facility to help emerging markets suffering from a lack of liquidity despite strong economic fundamentals. Under the new system, Korea will get up to 22 billion dollars.

If needed, Korea can also utilize 52 billion dollars as a secondary line of foreign reserves.

Under the currency swap arrangement to take effect through April 30 next year, the Bank of Korea can borrow up to 30 billion dollars from the Fed in exchange for depositing the same amount in won.

The deal immediately boosted foreign confidence in Korea. The New York branch of the Bank of Korea said the credit default swap premium on Korea’s five-year foreign exchange stabilization bond, which reflects Korea’s credit risk, fell one percentage point to 4.7 percent.

On the IMF’s new facility, Korean Strategy and Finance Minister Kang Man-soo said Seoul will not ask for the IMF’s support considering the Korean people’s sentiment against the fund.

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